Soaring Chinese wages must be welcome news to the US and particularly to Senator Schumer of New York. This means Chinese goods won't be cheap anymore and American consumers will be buying less resulting in a drop of Chinese imports. Since Chinese workers are now paid more they could afford buying more American imports. It appears that the Americans got what they want without China appreciating the Rmb at all. What a win-win situation !! Can we now expect no further China bashing from the US ?

American politicians/economists such as Schumer/Krugman blame China for US job losses because China manipulates her currency making US manufactured goods uncompetitive. However, I don't see any US politicians/economists blame India for manipulating her currency resulting in IT outsourcing to India. Why ?

I thought that his was the whole exercise of the game: allow developing countries to develop and share our standard of living.
Did I miss something there? You mean that those huge conglomerates will no longer be able to benefit from China's cheap labour?

Rising wages and an appreciating Chinese currency is affecting MNCs... most are facing squeezed margins. MNCs will have to adjust to the rising cost basis in China or else their profits will disintegrate.

The scapegoating of Chinese workers for all America's employment ills is ridiculous (see Romney, Obama, Krugman et al for saying China is "stealing" jobs. The reality is that Chinese workers benefited American consumption as a deflationary force.
" jobs

"The scapegoating of Chinese workers for all America's employment ills is ridiculous (see Romney, Obama, Krugman et al for saying China is "stealing" jobs. The reality is that Chinese workers benefited American consumption as a deflationary force"

American politicians and economists from Ivy League Universites are so cocky and spoilt that want the proverbial "have the cake and eat it"

Congratulations!! You are entering the most forgiving off all professions: you could be wrong all the time and yet still have a job. In contrast, an engineer does not get second chance if he designed a bridge which collapsed.

Actually, no. Development should not be tied to the American standard of living. Degenerate spiritualism. This accusation has been tested in Africa for accuracy.
And yes: Huge capitalist conglomerates will still be able to benefit from the incredible deal they got in Asia!

No, probably not to our North American standards--perhaps that's far into the future. But at least, stadards that bring them up from the deep hole where they were before. Hopefully they can some day purchase the expensive stuff that WE still manufacture.

Such was the world before you were born. Not a witness myself. And poof there was reality.
Where did the devil flee to. A land where contempt rides high, to be just another human. Your random answers are aimed to your hearts contentment, but where does that lead to?
Inherent is the general ability to apprise human worth. The ability can be lost: over-ridden, replaced, belittled, and atrophy without utilization.
What, if I may be so honest, is the value of a human being?
Work. Even a child can verify the validity of work. The local workers proclaim, "They commit crimes against the fabric of the community, and run away, more worthless than before." "Let's have a realistic justice!"
When the workers testify against the criminal, do not claim moral ignorance of basic human values. They thought their ego was logical and supreme; they asked for forgiveness; but they were transparent. Like mice that crawl over each other. Their lot passes through many hands. If the mouse is destructive to the community then destroy it. Who will this death serve? The community. Would you immediately commit some crime against their laws, or wait to inevitably be caught?
Don't think that in the foreign lands with the laws you fear, that the innocent are so scared they will be punished by their judges. The Law of Workers supports the workers and pays the judges. And punishes the wicked. Ones that would, admittedly, live in America. The whole country flinches, gets anal with it, and proclaims a light is risen.
But what is life? A value upon Earth that suffices or is insufficient. Oh, this film!

What interests and amuses me is that no one even mentions India. India's labor is far cheaper than China's, but there is no mention of moving manufacturing to India. Of course, this is partially because of poor infrastructure, poorly educated masses, and so on; but why is there so little discussion of why India makes no attempt to improve these things? Why India makes no attempt to become a manufacturing center?

they don't want to be your slaves, perhaps? They value other things in life more than massive accumulation of useless "goods" and money with no hesitation about the effects of such hording on the environment, health and future generations... hmmm...

What interests and amuses me is that no one even mentions India. India's labor is far cheaper than China's, but there is no mention of moving manufacturing to India. Of course, this is partially because of poor infrastructure, poorly educated masses, and so on; but why is there so little discussion of why India makes no attempt to improve these things? Why India makes no attempt to become a manufacturing center?
----------------------

Indian politic, enivornmental group, tribes, and union will kill any projects which will help improve them. Biggest democracy works, but in somewhere else!!

In India 54% of the people live on less than $2 a day and 22% suffer from malnourishment. On account of poverty and hunger, Indians are LESS healthy than their neighbors to the east. If you look around the world and throughout history, the only consistent and reliable way for a country (especially a large country) to pull itself out of poverty is to industrialize. This is not about being able to buy useless goods, this is about making sure your family has enough to eat and that your children can go to school instead of helping the family by begging for money on the street.

Read an article in NYT last year. Basically, the big reason it cites for India's failure to industrialize more is because of poor basic education - literacy rate is only ~68% there. That locks out many people from good manufacturing jobs, and relegates them to the most menial of jobs in primitive textile workshops.

I believe 'youarecorrect' aptly summarize why India makes no effort to become a manufacturing center. The elites of the Indian society pride themselves in the 'cerebral' IT outsourcing model, and see manufacturing as menial work. Time and again I have seen Indian nationalists imply that Indians are more intelligent because they are famous for the back office model.

In fact when I used to work in Accenture, one of my Indian colleague seems surprised that a Chinese like myself can be just as competent in IT. I think we came to the conclusion that India is more famous in the IT outsourcing business because they do have the advantage of having English as a national language. This is probably going to be remedied in the near future when English teachers like yourself bring the Chinese population up to standard. (Watch out Indians, you are gonna face some stiff competition in this area too!).

So the problem is that the people in power makes no attempt to even develop their manufacturing industry, and try to justify their failure to do so through ridicule of the Chinese rivals. This is not an good strategy in the long run, because you simply cannot expect a country the size of India to develop by having everyone work in the IT outsourcing business.

India maybe Call center King for now but Phillipines is quickly seizing share. India may have a lot of English speakers, but so does China (more english speakers than in USA) and Phillipines. However Asia does not necessarily want the person on the otherline to be speaking English or Hindi. Asia-Pacific is still predominately Mandarin in speakers and most them prefer someone speaking in their mother tongue, or at least similar cultures and timezones. HK, Taiwan, Singapore will want to outsource those services to China and so I doubt India will be able to compete unless its starts learning mandarin.

Indian outsource Call centers to Philipines. It is a myth that Indian speak English, in fact speak Inglish. No one understand those Indian call center's english, You need an interpreter to understand them.

India is a mess, it does not have the strong central govt. to make things happen. It also has a myraid of laws and regulations. If India was going to be the new China, it would have already been there. Also, indias miidle class is already at 250 miilion or so, there are lots of indians making good wages already.
India's indfrastructure is also a mess. Many places have lttle in dependable transpoetation and electrictrcy.

Waaah! The workers are discovering they want more out of life than a mud hut and a bowl of old rice! I can't treat them like slaves anymore! Waaah!

I am glad this is happening. I hope other countries follow suit and soon. We don't need more cheap Chinese junk in this country anyway and maybe it will even cause one or two manufacturers to bring operations back to the US!

Indeed, Chinese workers are now no longer willing to toil is sub human conditions. Job opportunities are plentiful here, so companies will either have to go upstream in production (thus get better quality products exported to the US0, face squeezed margins, or relocate to other markets. Net-net, changes are huge and companies that can evolve (say sell into China rather than just produce there) will do very well.

Don't worry - there will soon be high quality Chinese products available for just the discernible US consumer. Remember, "Made in Japan" used to rubbish decades ago as well. The question then would be - can said discernible US consumer afford the aforementioned products?

There have always been high quality Oriental products on the market. So don't break the next Chinese thing you buy just because you've got a homeland attitude.
Asia will be a premier provider of customer satisfaction, whatever the vocation may be - there with a good deal to put a smile on your face. What else does the world need?!
The "Chinese Catalog" is big, and includes many standard items like technological services; but if you're in the mind of purchasing like a whole country, it's still best to buy a small one. It's easy to take your own beliefs seriously when levity is required: The Chinese People do not work in, nor have they, "subhuman conditions." The biggest issue in China, and I say this as a philanthropist, is the value of human life.
Of course, you're from a good family.

An interesting metric is exports per capita. If you do an exports per capita analyis, you will find that Mexico exports something like 6 times more than China, on a per capita basis.Even the US exports more than China, on a per capita basis.

That is why you can only compare China to India, since they are the only two countries w/ similar population sizes. Someone also mentioned how if China runs at full manufacturing capacity (employs most of its working age population in factories), the world won't be able to soak up all the supply.

Its funny how every time a BRIC country has some small malfunctioning in their "machines", all the "first world" media desperately broadcast its a "trend" like the whole "machine" is set to fall apart.
But when the same malfunction is in those "first world machines", its just a charming noise, just an unscrewed part, its never a trend.
Was China itself a "trend" 20 years ago? Certainly not, to these prophets eyes...

The wage increases in China (21 of China's 31 provinces increased the minimum wage on avg by 22% in 2011) is a good thing for the nation... and for companies that can evolve to sell into China and target increasingly wealthy Chinese consumers. You totally right. It is net-net good for China.

The problem/ challenge comes for companies that cannot figure out how to adjust to rising costs. They are getting margins squeezed or, ultimately, will have to export inflation to the US.

"In response to sudden demand, a Chinese factory making iPhones was able to rouse 8,000 workers from their dormitory and put them on the assembly line at midnight, according to the New York Times. Not the next day. Midnight. Nowhere else are such feats feasible."

Interesting anecdote. How long before rising wages/living standards/personal expectations reach the point in China where this is no longer the case? The further Chinese workers move up the value chain, the less likely they are to tolerate sweat-shop-like conditions.

Foxconn might have long hours and lower wages than the US, but the working environment is hardly a sweat shop, from Foxconn photos and what I've seen in US facilities they are about the same, if not better in some cases, if only because the intricate parts are building require such an environment.

The workers are demanding more pay and benefits, but they will always be able to tolerate longer working hours more than sitting on unemployment checks or handing out fries at a restaurant, its called face.

It's all relative. China is still cheap compared to America, especially when you consider all the frivolous lawsuits from labor lawyers, civil rights lawyers, environmental lawyers, class action suit lawyers...jobs leave America because we are a country of laywers, by lawyers, and for lawyers.

True, in some respects. But salaries and rent in prime locations in China now are really expensive. Office space in Shanghai is more than in many locations in the US and top Chinese talent is commanding higher salaries than expatriates right now because everyone is trying to sell into China.

For all the commentators comparing China today to Japan in 1985, I think two things need to be kept in mind:

1. Japan didn't stagnate until it reached the top. In terms of HDI, GDP per capita, or almost indice you want to use Japan is near the top of the world. China most certainly is not. China continues to be filled with untapped potential and ineffiencies waiting to be rectified. As much as I detest the labeling of countries as "developed" and "developing", it is so certainly true that Japan is as highly developed as any place and China still has so much more waiting to be developed.

2. Scale. Japan is not a particularly large country. China is enormous. This article clearly describes many of the advantages of this. There is no comparison between Japan and China in this regard. When it comes to scale, China's only possible source of competition is India; but, for whatever reason, India is choosing not to compete.

Scale will end up becoming a problem. Japan, working at full productivity, will still find excess demand for its goods. If China runs at anywhere near full productivity there simply wont be enough humans alive on earth to buy all their stuff. They will eventually face a diminishing rate of return on any further production, even if the rest of the world allows the flow of capital to run in China's favour well into the future.

My suspicion is that sooner rather than later, unemployment in the West will force governments to level the playing field with China and start imposing heavy tariffs on Chinese products.

That's hardly a realistic outcome. Domestic consumption is increasing, innovation is increasing, China's economy is becoming more diversified, and the share of China's exports that head to the West is shrinking.

When I'm talking about full development, I'm not talking purely from a manufacturing standpoint. China is filled with underemployment, poorly educated people, and inefficient use of labor. All of these can be vastly improved and generate continuted grow and increased standard of living (which is the goal) without needing to export more to the West.

China is enormous in terms of population. It is not enormous geographically or in terms of resources. Russia is truly enormous and rich in all sorts of resources - except for manpower. Watch them if they ever bounce back.

Let me just point out though that Japan's population was larger than any other European population except for the Soviet Union/Russia (and still is as far as I know).

Otherwise, Japan's population slowed down markedly by 2000 at just short of 127 million people. Weak population growth probably didn't help the country with getting out of a post-bubble hangover.

Otherwise, Japan, like Germany, remained a leader in producer goods, automobiles, medium to high value goods for some time, and are still quite adept at automation and process efficiencies for large scale manufactoring.

It will be interesting to see how Japan handles a constrained workforce (aging population and marginalization of women and temp workers), higher value Yen and competition from S. Korea as well as from a China keen on moving up the value chain.

Scal will not be a proble for China itself. Once China runs nearly full productivity, they can consume the goods by themselves, as they have increasingly middle class population. The demostic demand within China has not fully developed yet now.

The four projects I am consulting on in Beijing and Shanghai are all world-leading in its innovations. One reason is that the market is TOO BIG. 1% penetration means 13 million users and a very profitable business. Think about the more than 1 billion mobile phones; one apps means one million paid users. The environment is just TOO condusive to innovation. My forecast is in 20 years; 1/3 of worldwide patents will be registered from China.

Exactly. But it is unlikely that many nations will have the political will to reform their economies as fast as China did in the 1990s. It will be hard to get the infrastructure set up in places like Vietnam where the logistics system remains in disarray.

I think Vietnam will do well but they have a major problem -- infrastructure. They just have not developed it as fast as I had hoped. Vietnam will do very well on light industry (already Nike produces more there than in China) but is unlikely to totally take manufacturing from China.

So what is so different about infrastructure development in Vietnam? Except for some areas close to the western border, I thought most of Vietnam was flat. Compared to what China had to deal w/ in Tibet, Xinjiang, or even southern China, I thought Vietnam would have an easier time building infrastructure?

They just really have not started building anywhere near the scale of China. I think they are also hampered by the wetness under the soil (but I am not 100% sure of that as I am not an engineer but am told that is why they cannot build subways etc. as easily). Their ports are also just much smaller.

I think these are dubious propositions when looking at recent history:

"But it is unlikely that many nations will have the political will to reform their economies as fast as China did in the 1990s. It will be hard to get the infrastructure set up in places like Vietnam where the logistics system remains in disarray."

South Korea had amazing and suprising accomplishments in the 1960s and 1970s. Only Walter Rostow was not surprised. Other officials had expect S. Korea to resume its prewar role of being an agricultural country supporting Japan.

Taiwan went through enormous changes following the Chinese Civil War as described in Ezra Vogel's book on the asian tigers.

Not to mention Japan, which was able to recover during the Korean War and become a leading industrial power by the end of the 1960s (with only Herman Kahn noticing the obvious, with his book on Japan as The Emerging Superstates).

Conversely, China went through a lot of reforms in the 1980s too, prior to the 1990s.

I don't think the possibility of other countries industrializing and/or modernizing can be so easily circumscribed based on an intangible factor like political will (especially since prognosticators and think tanks had been suprised before on a number of occasions).

As for infrastructure, the US did set up a massive, bizarre military infastructure and advanced logistics systems in Southern Vietnam and Thailand in the mid and late 1960s.

Seems possible that could be replicated for the civilian realm by countries trying to improve their own circumstances.

South Korea and Japan both had large conglomerates run by families for generations with close political capital... they were able to seize early industrial reforms and changes and get. They had many of the bureaucracies in place. Vietnam does not have that same history in business.

China indeed can no longer be seen as only making cheap products because of cheap wages. Costs are rising so much here that China ultimately will become an inflationary force on the world, rather than the deflationary force it has been for the last three decades.

Last year, export prices to the US from China rose 3.6%, the highest on record.

For more on the trend brought up in this short article, read the actual book "The End of Cheap China: Economic and Cultural Trends that will Disrupt the World" that was released this month by John Wiley written by Shaun Rein. Funny that the article does not mention this.

This is a really good article from The Economist for a change as relates to China. While in China two years ago, a distant relative told me he was busy retooling a factory he owns with another friend in Shenzhen. The Chinese government is incentivizing factories to upgrade as well to move the garment and other low-end stuff more inland.

Our blog interviewed Shaun Rein recently. The "Cheap" in the context of labor is only one aspect. There is of course China's growing middle class and her insatiable appetite for luxury goods. China is already Intel's largest market. GM produces more cars in China now. Apple is growing exponentially in China. Shaun Rein indeed has tremendous insights when it comes to China:

Hi Huaren20000. Thank you again for interviewing me about "The End of Cheap China" for your blog.
I am frankly kind of surprised that the Economist would use the title of my book (which was released this month) without mentioning my book because I have been in touch with some of their China focused journalists since the autumn. They know very well the book title.
Anyway, thanks to the Economist for helping market my book. I would be happy to discuss with them about "The End of Cheap China" or have you review the book more formally.
Shaun Rein
Author "The End of Cheap China"

@Shaun
What a coincidence to see you here! "The End of Cheap China" shows up really well in Google search results, so congratulations. Indeed surprising The Economist doesn't mention the book! We are just waiting for it to arrive and looking forward to reviewing it too.

@Economist readers
I strongly recommend you head over to the link I provided in the above comment. If you want to see with your own eyes what a nuanced understanding of China is like - something you expect The Economist one day to be able to produce - then read what Shaun Rein has to say.

Rein is not bashful about criticizing - corruption, pollution, food safety, you name it.

His firm does market research and talks to all strata of Chinese society. He can explain why there won't be a residential housing crash - all the while rags like The Economist from time immemorial predicts an imminent crash.

Good to see you here too. I usually don't comment on message boards, but I woke up today with about 30 people emailing me that the Economist ran a piece with the same title as my book... but unfortunately did not mention my book... so I just had to chime in.

Hope you enjoy the book when it arrives (which should be soon). Indeed, my book has an entire chapter on food safety, another one on corruption and many references to pollution. Unfortunately, my book was actually banned for sale in China but clearly the US and China both need objective analysis on how China is evolving.

Thanks. It is a shame. There needs to be objective discussion -- both inside China and out -- about how China is evolving. People in China can get the book via Kindle or fly to Hong Kong. Very disappointed about the banning of sale...

Thanks. It is a shame. There needs to be objective discussion -- both inside China and out -- about how China is evolving. People in China can get the book via Kindle or fly to Hong Kong. Very disappointed about the banning of sale...

This article could easily be dated 25 years ago. Except substitute the country name for Japan. In the 80s all sorts of rationalizations were made regarding competitiveness and why electronics could only be made in Japan. And then along came China, with little industrial infrastructure, who could not possibly supplant the Japanese.

The other Asian nations are not just lying down. They are looking at each component to competitiveness and taking steps forward. Sometimes one back, but mostly forward. And there are Asian businesses (ex-China) just waiting to take over that juicy contract from the more expensive Chinese factory.

Good point. The reality though is that most companies will not be able to relocate to other countries in the next 5 years -- China's infrastructure and labor productivity is far superior.

In the 2nd chapter of my book, "The End of Cheap China" I track the case of a US furniture manufacturer that relocated from China to Indonesia and Vietnam. They ended up relocating back to China most of their operations because they found Vietnam and Indonesia to lag too much when it came to infrastructure and mid level mgt.

Other nations, I am especially bullish on Indonesia, will be able to grab more share in light industry. But it will be hard for other nations to supplant China completely.

At some point in the intermediate future, manufacturing will have automated to the extent that (environmental regulations allowing), most US manufacturing will be domestic.
Even today, for example, most machines shops need entry-level programmers (to program the machines) rather than traditional machinists.

Automation is often the necessary rather than an option, Chinese machinists are no more able to bend steel by hand or machine a few thousand parts a day than an American worker, if a business decide to persue automation, chances are they will still be based in China, for all the reasons stated in this article

Very true, but...
With increasing automation, labor costs become a smaller fraction of the total cost of a product. For example, automobile labor costs are currently 5% of the MSRP (and declining).
On the other hand, transportation costs have been rising and (in many cases) have negated the lower labor costs of a distant country.

Yes, with labor costs soaring here in China, automation is one choice. Foxconn (who makes many of Apple's products) for instance, has announced it will install 1 million robots on its factory lines here. Relocating out of China for many manufacturers simply is not as option because China outcompetes the rest of the world in infrastructure and worker efficiency ratio to wages.

Totally agree with you. And workers in China are becoming more demanding, and the govt is starting to enforce labor laws (such as working hours and benefits). All of this is good. All of this though will increase production costs.

It should also be remembered that China is now graduating many scientists and engineers from its universities. It is entirely possible that China may become the biggest and the most efficient manufacturer of robots. Further these robots require regular servicing by competent engineers. Therefore, China might be the best place to install robots.

The market for robots in China must be enormous considering that China is now the factory of the world.

It is one of the fastest growing robotics market now according to the International Federation of Robotics. I am not sure if it is a broad based development, that is across multiple sectors like electronics and automobiles, rather than just with automobiles (that is the beachead and trendsetting sector for most of industrial robotics history).

"China outcompetes the rest of the world in infrastructure and worker efficiency ratio to wages."

What would fall under the category of "infrastructure?" (port facilities, roads, broadband communications?)

If infrastructure alone was an issue, then manufacturing probably would never have migrated from North America and Europe. Also Japan has excellent infracture.

What do you mean by "worker eficiency ratio to wages?"

Up to a few years ago, it seem there were quite a few problems with the worker efficiency side of the equation, that throwing 50 workers at a problem didn't necessarly lead to the kind of resolution you would get say with just 2 employees in Japan (or Germany). Quality problmes requiring rework was also a problem once (at least up to 2009).

As for productivity, China and the US had comparable manufacturing outpout in 2010 but with vastly different blue collar labor forces. Now granted the US' productivity figures probably benefitted from accomplishments in offshoring to places like China.

So I guess, what specific sources and figures can you cite to support statements on worker efficency/wages ratios of China.

Probably right now a combination of extensive infrastructure development and cheap wages help favor MNCs retaining China as an offshoring destination. Also, I think servicing the internal China market is equally compelling (back to market access, like many of the moves done by American firms back in the 1980s and 1990s).

This article reaches some conclusions that are somewhat contradictory. If China has a manufacturing system that is difficult to replicate elsewhere, is it really necessary to innovate to get ahead? Perhaps they will realize that they are in a pretty good bargaining position towards consuming countries and can raise salaries quite a lot for "regular" manufacturing. The japanese and koreans had to innovate because the menial work could be transferred to china. But there is no equivalent place for china itself.

China does need to innovate to continue to rise, but Vietnam is not an equivalent of China. Vietnam is the size of one Chinese province. We can be sure that more companies will move some manufacturing to Vietnam and Vietnam will hopefully become a major industrial center, but it will never be the world's factory the way China is.

Japan did not move up the value chain by "freeing up" low cost labor, a person working in a factory does not become innovator just because his or her job has been moved overseas.

It does not take the entire Chinese labor force to work in manufacturing, the availability of innovators is always there, the millions of engineers who graduate each year does not do so at the expense of factory outputs.

The risk aversion culture developed as a result of several generation of poverty is what's preventing many from taking on the risk of innovation, but it does not take several generations of being in the middle class for that risk aversion to wear off, for better or worse, this was true for both Japan and South Korea as well. I believe a few million science and engineering graduates will contribute more to China's manufacturing industries than a few million laborers.

Germany is of a similar size to Vietnam and for most of the last 40 years had the been the worlds #2 exporter (mainly manufactured goods). Cost advantage got China to where it is now. When that goes (as it will) the only way they can remain "the worlds factory" is innovation. Believe me, the money moves where capital can get the greatest return.

Very good point. Historically, it did not make sense for most Chinese firms to innovate -- why spend the the money, time on R+D when there are so many ways to make quick money? That is a key issue many analysts neglect when they analyze why there is relatively little innovation taking place in the country.

This topic is actually chapter 1 of my book "The End of Cheap China". Going forward, as China gets more expensive, more innovation will necessarily need to take place. The question as you have brought up, is how much is really necessary.

Comparing Vietnam with Germany is a bit of a stretch. The former has the benefit of being in Europe during industrialization while the later just kicked out its last invader 3 decades ago. As much as I like Vietnam, its culture is a 50-50 mix of north east Asian and south east Asian. While I am confident it will do better than Malaysia in the long run, it is definitely no South Korea.

China can remain the world's factory simply based on population and work ethics alone. But China's aspiration is the world's everything

THe opportunity to be a workshop of world always move seeking for cheap labor cost country. it means that a nation's economy growth based on cheap labor cost can not be persistent.
For leaps and bounds, innovation to keep or improve competitiveness of nation is always necessary.
One of examples is "Switzerland and Argentina"
If china can not move to "high value added-industries", the follower such as Vietnam, Myanmar, Laos will replace China as "workshp of world".

Let me point out that Germany was devastated in World War II and subsequently occupied. With the occupation, it was open season on their patents and IP; while occupiers like the Soviets and to a lesser degree the French, stood out in requisitioning physical assets.

Nothing says recovery was inevitable, let alone that West Germany would become the number two exporter for more than 50 years after gaining full sovereignty (entering NATO in 1954). And they retained their position as a high value manufacturer and number two exporter in the face of a strong Mark and high wages.

You are right about Vietnam only recently appearing on the business world stage. However, seeing how quickly development had taken place in places like South Korea in the 1960s/1970s and Malaysia, I don't think Vietnam can be immediately dismissed as an offshoring destination for commodity goods manufacturing. Granted there may be other competitors, like Indonesia and Bangladesh to keep things interesting.

As for work ethics, is there any study providing a ranking comparing countries? That would be interesting.

One cut of the work ethic issue could be looking at corruption in business (so the work ethic of the managers, business leaders, professional classes). So far China still seems to only be improving slowly if the transparency index is reflective of reality to any degree...

Although China has a fully developed supply chain system to be their competitive advantage, they still need to put effort into innovation.

Because, firstly, traditional manufacturing is a natural resource consuming industry which has already impacted China's environment,some places are severely affected which in turn requires hugh amount investment to solve. Then, plus the soaring wage rate for labour cost, mainly related to the raising domestic CPI, the total marginal income for this industry will be continually decreased until it reaches a break point. And, as a centralism government, China cannot afford such a bankrupt situation for nealy half of their citizens. That's why they encourage innovation at the first place.

If we recognise the first reason to innovate as a necessarian path to prevent predicted extreme outcome, the second reason will be more like a follow the flow scenario since histroy has taught us that after the stage of capital primary accumulation, every market requires new points of growth to shift its capital in order to generate more profit, England chosen Banking, America chosen real estate, and China's choice is technology, the only domain the government feel safe to reduce its macro-control and also a good place to absorb its multimillion University graduates.

Your throwing a lot of Econ terms out there. And under some basic principals you are correct. But you need to factor more into your thought process such as taking into the social science of china and that it is not yet a captialist market.

I have heard of Veitnam, but it only has less than ten percent of population of China. Further more while 30 percent of its populationis young, its fertilty rate is already at or below replacemnt, meaning that vietnam will not be an any postion to repalce china